S.36 Income Tax Act | Deduction For Bad Debt Allowed Only If Assessee Lends In Ordinary Course Of Banking/Money Lending Business: Delhi HC
Live LawThe Delhi High Court has made it clear that allowance in respect of bad debts as an expense under Section 36 of the Income Tax Act, 1961, is permissible only if: the debt was taken into account for computing the income of the assessee in the previous year in which the amount is written off or prior previous years; or represents money lent in the ordinary course of business of banking or money lending. The AO disallowed the deduction on account of bad debts, primarily on the ground that giving a guarantee was not one of the main objects of the assessee and that the assessee had not initiated any legal proceedings for recovery of the amounts due despite the fact that accounts of CIPL reflected that it had given a donation of ₹10 crores during the FY 2014- 15 and therefore, had the resources to repay the amounts. The High Court at the outset referred to Section 36 of the Act to state that no deduction on account of bad is allowed if the same was not accounted for in computing the income of the previous year or prior years, or represents money lent in the ordinary course of the business of banking or money lending. Plainly, the same was not a transaction that was entered into in its ordinary course of business.” Court also agreed with the AO that the assessee had written off a large amount due from CIPL as unrecoverable without taking any steps for recovering the said amount.
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